How to build a financial crisis

Like so many big lenders who weren't judicious in how they dispensed their cash, Citigroup has been facing a liquidity crisis... and now 11% of it is owned by a Middle Eastern investment fund. How did this happen? Taking on a few too many customers like this:

...Natalie Brandon, a 51 year old married woman from Granada Hills, CA, who is currently unable to make the payments on her $625,000 adjustable rate home loan from Citigroup, despite the fact that the rate will not even reset higher until June of next year. Amazingly, the Journal reported that Mrs. Brandon bought the house in 1985 for just $105,000, but had chosen to refinance five times over the past seven years, borrowing more than $500,000 and spending every single penny. While this may be an extreme example of American profligacy, it is by no means unique. Unfortunately this type of behavior typifies everything that is wrong with the modern American economy. Had this homeowner behaved responsibly, as was typical for Americans of prior generations, her current monthly mortgage payments would likely be less than $600 and the remaining balance on her loan would be about $40,000. In eight more years she would have owned her home free and clear, and would likely be on track for early retirement. Instead, after 22 years of making mortgage payments, she is now $625,000 in debt. The article stated that she had recently tried to refinance into a 6%, forty year, fixed-rate mortgage, but it fell through. Even if she had qualified, she would have been obligated to make monthly mortgage payments of close to $4,000 until she was in her nineties.

Some months back I mentioned remembering an old TV episode of the Waltons where the family had finally paid the mortgage off and had a "mortgage burning party." (Of course, the drama came when a crisis forced them to take out a new loan against their property.) Americans used to have that kind of attitude toward debt -- it represented obligation that meant you weren't truly free. And that attitude is correct. I'll say it again: debt is slavery personified, since it grants another person first rights to your labor. I have no sympathy for big lenders who threw loans to marginally qualified people because they wanted to earn a little more interest. Everyone reaps what they sow: big spenders like the woman above has reaped a future likely to include the loss of her home and little chance of retirement. Citigroup reaped predictable defaults from questionable loans. And American society is only in the early stages of reaping a financial earthquake brought on by fiscal insanity that's literally eaten out the foundation from under our economy. The purchase of the Abu Dhabi stake shows the vultures are circling...